FEDERAL JUDGE DETERMINES THAT TRAVEL COMPANIES OWE CITIES HOTEL TAXES

A recent court ruling in the ongoing legal battle between 173 Texas cities and online hotel booking companies like Expedia, Hotels.com, Hotwire, Priceline, and others, has moved the cities one step closer to recouping the hotel tax revenue they were deprived of by the travel companies.  On July 1, a federal judge determined that online travel companies are obligated to collect and pay hotel occupancy taxes on the total amount that hotel guests pay for rooms, instead of on the lower amount that the companies pay hotels for the right to resell the rooms. 

In 2009, a federal jury ruled in favor of the cities in their class action lawsuit against the online hotel booking companies.  The jury awarded $20.6 million to the cities based on their argument that the online companies failed to remit city hotel occupancy tax on the “markup” difference between the amount the companies paid for the rooms and the price at which they sold the rooms to consumers.

The recent victory for Texas cities came when U.S. District Judge Orlando Garcia entered his post-trial findings of fact and conclusions of law.  In reinforcing the jury’s determination that the online travel companies are obligated to pay more in hotel taxes to cities, the judge also found that cities were entitled to additional actual damages that accrued since the jury verdict in 2009.  The judge determined that the online travel companies, within six months of the entry of judgment, have a duty to devise a system of reporting the amount of hotel occupancy taxes that are to be paid to cities in the future.

Although the ruling by Judge Garcia is promising, the dispute is far from over.  An appeal by the online travel companies is likely.


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